Michael Spencer, the City grandee and Tory donor, has said he is prepared to
relocate Icap out of the UK if European leaders push ahead with plans to
introduce a financial transaction tax.

The founder and chief executive of Icap, one of the world's biggest inter-dealer brokers, has warned that the proposals to shave a tax off fees charged for every financial transaction would be prohibitively expensive.

Mr Spencer said at the weekend: "This tax would destroy the City and cost the Exchequer billions, but it would benefit Brussels. Companies like Icap will simply move elsewhere outside the EU if Nicolas Sarkozy and Angela Merkel push ahead with this silly tax."

At the Paris summit Chancellor Angela Merkel and President Nicolas Sarkozy said they planned to introduce the tax as part of their response to the sovereign debt crisis.

Mr Sarkozy said: "The French and German ministers will table a joint proposal at EU level next September for a tax on financial transactions. This is a priority for us."

The details were scant but traders reacted with alarm, selling stock exchange and bank stocks that could be impacted by the tax. A report by Open Europe found that the plans by Germany and France to introduce a financial transaction tax (FTT) could raise a total €80.9bn (£70.7bn) – of which €58.3bn would come from UK-based businesses.

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The think tank said that total EU financial transactions amounted to €830trillion and a tax could be imposed at the rate of 0.1pc for bonds and shares and 0.01pc for derivatives. Mr Spencer added: "This is another cynical threat by Sarkozy who knows this tax would overwhelmingly hit London as this is where trillions of dollars are traded each day in foreign exchange, equities, commodities and derivatives markets. It would also be a huge fillip to New York and other centres like Singapore. It could only work if adopted globally."

Martin Callanan, leader of the Conservative MEPs, called on David Cameron to "state categorically that the UK will reject any plans" for the tax.

Last week, Treasury sources signalled that Britain would be prepared to veto such a tax if Paris and Berlin succeed in bringing the plan to a vote among 27 EU members.

The Treasury agreed with protests from UK financiers and politicians that the tax would end up harming the economy. "Any financial transaction tax would have to apply globally, otherwise the transactions covered would simply relocate to countries not applying the tax," a spokesman said.